An American Innovation Agenda

Several years ago the health minister of a major European ally asked me why the United States was so far ahead of the rest of the world in biotechnology. While there are thousands of biotechnology firms outside the United States, many of them offering great promise, this minister and doctor asked, why are the most successful firms here? Of the top 100 biotechnology firms in 2006 based on revenue, 72 were from the United States, employing almost 1.2 million people.

My answer was framed around what I see as the five key components of how to grow the American economy:

First, any nation seeking to advance biotechnology must have a strong scientific base. In the years since the end of World War II, the United States has used the National Institutes of Health and private-sector research to pour hundreds of billions of dollars into basic and applied biomedical research. More than 25 years ago a new federal law required universities and the private sector to more actively collaborate and transfer technology. Companies like Genentech, Biogen Idec, and Amgen all had their genesis in this kind of collaboration. For other sectors, such as “green technology,” this kind of government spending makes sense—but the model is not applicable to the broader economy.

Second, biotechnology can only thrive in countries that protect intellectual property. The United States has one of the strongest, most balanced, and most effective patent systems in the world. To be sure, the importance of intellectual property protections as a catalyst for innovation varies among industries, but there is widespread acknowledgment that the government should be preventing and prosecuting piracy.

The third factor is a vibrant and working market. The United States has a relatively free market in the pricing of pharmaceutical products, without explicit rationing to control prices. The government doesn’t interfere with critical decision making between patients and doctors. That lack of interference is critical in every business, but especially in biotechnology, where it can take 15 years and more than $1 billion to go from invention to approval.

This free market leads us to the fourth factor: access to funding from venture capitalists and other investors. Scientific innovation is risky and competitive, and market-based rewards drive investment. Direct government investment in the private sector has historically been unsuccessful. But government tax incentives that drive research and development, encourage capital investment by allowing more rapid expensing, and expand credit for small- and medium-sized enterprises can complement the market. Investors in America are willing to reward risk takers who invent, discover, or develop innovative products and services—from the iPhone to Google to the electrical smart grid.

The fifth and final factor in our success is a system where new products are regulated on the basis of sound science. We are fortunate to have qualified professionals at the Food and Drug Administration who protect public health by carefully and transparently evaluating our products. Consistency and transparency in minimally intrusive regulation are fundamental to business success.

When I finished listing the five factors of American success in biotechnology, the health minister shook his head. There was no way his country could match the United States on all five. He knew his country’s patent system was good and that European approvals were based on sound science, but the collaboration between the government and private universities on R&D spending was weak. Moreover, their capital markets were skittish, and their pricing system did not offer sufficient freedom to fully reward innovation.

Can we apply the lessons of biotechnology to other sectors of the economy? Absolutely. The genius of the American economy is its adaptability, its favorable climate for risk taking, and the judicious use of the market and government. We recognize that the government plays a key role by funding certain kinds of pre-competitive research, educating the workforce to world-class standards, encouraging private investments, protecting consumers with science-driven regulation, and transparently balancing the needs and interests of various stakeholders.